2017 AGM Chairman’s Address

Westpac Banking Corporation
2017 Annual General Meeting

Sydney, Australia
Friday, 08 December 2017

Chairman’s Address
Lindsay Maxsted

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Introduction
It has been a great privilege to be your Chairman in the year in which we have
celebrated our 200
th
anniversary. I am extremely proud, as I am sure you are, to be
part of the first company in Australia to reach this significant milestone. It was on the
8
th
of April 1817, near Circular Quay, only a couple of kilometres from where we are
now that the Bank of New South Wales first opened its doors.
Lachlan Macquarie, the founder of the Bank was a man of great foresight who knew
that the financial security of a Bank was needed to enable society to flourish. The first
shareholder meeting was held on 18 December 1816, just a few months before the
Bank opened, with 39 of the young colony’s leaders personally committing themselves
to support the Bank.
From its earliest days the Bank of New South Wales, and now Westpac, has been an
integral part of this country’s fabric – and you don’t have to look far to see the
connections:
• the suburb of Redfern was named after one of our founding directors William
Redfern;
• Potts Point was named after our first employee – Joseph Hyde Potts, who
served the company for 22 years; and
• just across the harbour, Milsons Point was named after one of our early
customers, James Milson, who would start a family connection with the Bank
that would stretch over six generations.
These close-knit ties with our society have continued over two centuries. We have
been there to support this country through two world wars, recessions and
depressions and the more recent global financial crisis as well as some of the country’s
great moments. We have shared in the highs and lows and in many cases we have led
the way.
We are a company of many firsts in Australia: first bank, first bank computer system
and first to offer internet banking. We supported the first disaster relief fund in
Australia, were the first to sign the Equator Principles, the first to appoint a female
teller and a female bank manager, and now, as of this year, we have proudly reached
50% women in leadership roles.
Being there to support the communities in which we operate has, and always will be,
at the heart of our business. In our 200
th
year we have reaffirmed our commitment to
this country and to building the foundations that will support the next generation.

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This includes:
• awarding our 200
th
scholarship as part of the Westpac Bicentennial Fund;
• supporting 200 outstanding small businesses through our Businesses of
Tomorrow program;
• doubling our grants to support 200 community organisations through the
Westpac Foundation;
• helping to boost Australia’s numeracy by giving Australians free access to
Mathspace Essentials; and
• supporting the preservation of Australia’s history through the restoration of the
Long Gallery at Australia’s oldest Museum, the Australian Museum.
Over and above these specific initiatives, we continue to examine how Westpac can,
and should, respond to some of Australia’s larger societal challenges. With the
sector’s reputation being questioned, it is timely to reflect on Westpac’s role in the
community and be even bolder in our aspirations.
Our people have always been the essence of our success and I would like to take this
opportunity to acknowledge all employees – past and present – for their role in
creating the company we have today.
It is our history, our close ties with this nation and the commitment of our people that
make Westpac a truly special company. As owners, you share in this success and
should be very proud of the contribution your company has made.
Performance
2017 has been a truly historic year. Not just because of our 200
th
anniversary, but
because of the strength and stability that has been achieved in what has been a
challenging time for our industry. We have largely completed a 10-year process of
strengthening our balance sheet; we have managed significant regulatory change and
rising regulatory costs, delivered improved financial performance and, for the fourth
year in a row, we have been rated the world’s most sustainable bank.
In Full Year 2017, the Westpac Group delivered a 7% lift in statutory net profit,
supported by good growth across our banking businesses and a gain on the further
sell-down of our investment in BT Investment Management. Cash earnings, which is
our preferred measure of performance, was up 3% over the year to $8,062 million.
This translates to a 2% lift in cash earnings per share and a return on equity of 13.8%.
While the financial numbers are important, in banking, it is equally important to
consider how that result was achieved. This year, the management team delivered a
disciplined performance, being conservative on growth, managing margins well,
keeping expenses under control and materially strengthening the balance sheet.

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The Group’s common equity tier 1 ratio, the benchmark for assessing capital strength,
increased by more than a full percentage point to 10.6%. That is an additional $3.8
billion underpinning the stability of your company.
Other indicators of company health were also very strong with employee engagement
up 10 percentage points and customer satisfaction metrics rising through the year. At
a time when consumer trust is paramount this has never been more important.
Given these outcomes, the Board has determined a fully franked final dividend of 94
cents per share which will be paid on 22 December 2017.
Shareholders will be aware that the dividend has been unchanged for the last four
halves and, given the increase in earnings, I wanted to provide further explanation so
shareholders are clear about our position.
As a Board, we seek to maintain a dividend payout ratio that is sustainable in the long
term and enables the Group to continue supporting customers while maintaining a
strong capital position through a variety of cycles. With the material increase in capital
over recent years we have assessed that a payout ratio in the range of 70-75% over the
medium term is consistent with these objectives and is sustainable.
This year, the dividend payout ratio was 79%, and while this was above our sustainable
range, our strong capital position enabled us to maintain the dividend at 94 cents.
Bank Levy
It is important to note that the Board considered a range of factors, including the
impact of the new Bank Levy, in our dividend considerations but decided to leave the
dividend unchanged.
The Levy applied for only one quarter this year (from 1 July to 30 September) but it still
had a real impact on your company and on shareholder returns. This year the bank did
not pass the Bank Levy onto customers, suppliers, or our employees and so it directly
reduced our profit and retained earnings. The Levy payment of $95 million effectively
reduced post-tax cash earnings by $66 million or equivalent to around 2 cents per
share.
That is, the company had 2 cents per share less available for shareholders or to further
lift our retained capital.
I wrote to shareholders when the Bank Levy was first proposed and I want to thank the
many shareholders who replied to me and those who also shared their views more
broadly. It is particularly disappointing that this levy discriminates against Australian
banks relative to global peers – that is clearly not in Australia’s best interests.

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While no decision on how to deal with the Levy has been made in the period ahead,
shareholders should be aware that the full impact of the levy in the 2018 financial year
is estimated to cost Westpac approximately $284 million – or around 8 cents per
ordinary share.
We will continue to work on your behalf for the removal of this highly inefficient and
distortive tax.
Management performance
In aggregate, the Board has been pleased with the performance of the management
team. The financial result was ahead of the Board’s expectations set in the early part
of the year while the strengthening of the balance sheet was well above expectations.
Of equal importance, the business is in good strategic shape. All divisions are well
placed and the business is making good progress on its strategic investments. In many
respects we are at the forefront of digital innovation and whilst we are the first to
acknowledge that the profound changes to our environment caused by digital
technology and software development generally will only escalate, your Board is
confident our investments in people and technology will serve us well.
Taking into account all these elements of financial and strategic performance, the
Board increased the short-term incentives payable across the Group executive team by
an average of 14%; this followed an average 11% reduction in short-term incentives in
2016. This year, for the second year in a row, no long-term incentives met the
stretching hurdles set by the Board when these incentives were issued in 2014. As a
result, no executive received shares from long-term incentive plans this year.
Banking on trust
There has been much negativity around the Australian banking sector over the past
year. The deterioration in the sector’s reputation has been a great disappointment to
me and the Board.
It is clear that some of the criticism of the Australian Banks is warranted. There have
been times over recent years when the financial services sector has failed to meet
customer expectations. As a Bank, and as an industry, we also underestimated the
intensity of community, regulatory and government reaction when these expectations
have not been met.
The Board and management at Westpac understand we must proactively respond to
these concerns and lift our standards to an even higher level – and we are. Brian will

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discuss how the industry and Westpac is responding to these issues to rebuild
community trust but I wanted to assure shareholders that the Board takes these
matters very seriously and is very much involved in overseeing appropriate responses.
In addition to all that is being done by the sector and its regulators, there have been
several actions taken by the Federal Government over the last twelve months
including, of course, its announcement on 30 November 2017 that there will be a
Royal Commission into the alleged misconduct of Australia’s banks and other financial
services entities.
Given the significant changes that have already taken place or are underway, including
as a result of regulatory scrutiny and Government inquiries, Westpac has consistently
argued that further inquiries into the sector, including a Royal Commission, are
unwarranted.
However we, and the other major Australian banks, formed the view last week that it
was in the national interest for the political uncertainty and speculation around
potential commissions of inquiry to end and for the Government to establish its own
properly constituted Inquiry. In this context, it is our hope that, ultimately, the newly
announced Royal Commission will play a role in restoring trust, respect and confidence
in Australia’s already strong financial system.
Board composition
There were two changes to the Board this year with the retirement of Elizabeth Bryan
post our 2016 AGM and the appointment of Nerida Caesar in September. Nerida was
most recently the CEO of Equifax in Australia, and in addition to her executive
management experience adds further deep technology and innovation skills to your
Board.
In early November, we announced that Robert Elstone will be retiring following this
AGM. Robert has been an exceptional director in his six years on the Board; he has a
sharp mind, a strong attention to detail and an ability to distil issues and focus on what
is important. In a period of heightened global volatility, having a financial markets
specialist such as Robert has been a great asset to your Board. I shall miss, and I know
my fellow Directors and senior management will equally miss, his insightful
contribution.
Succession planning for new directors is a regular item on the Board agenda and
discussions with new potential candidates are ongoing. As a result, we expect to
appoint one or two new non-executive directors to your Board in 2018. Potential
appointees will add strength and diversity to your Board.

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Outlook
We remain positive about the Australian and New Zealand economies. Both markets
have strong fundamentals with solid GDP growth, low unemployment and controlled
inflation.
These trends are expected to broadly continue in 2018, although growth is likely to
slow through the year as the construction cycle peaks and weak income growth
continues to weigh on consumers.
For the banking sector, it is a similar picture to prior years, although the further
tightening of credit standards, and regulatory limits on certain elements of mortgage
growth, will likely lead to slower growth in lending and deposits in 2018 relative to
2017.
Asset quality is expected to remain sound in the year ahead and, while there are no
signs of material concern, we will remain vigilant, consistent with our low risk
approach.
Summary

In summary, it has been a landmark year for Westpac. The success we have achieved,
the strength of our balance sheet and the positive momentum across the Group
means we are well positioned for the future.
As we begin our third century, our biggest challenge lies in rebuilding our reputation
across the communities in which we operate. If we are to continue to prosper we
must ensure the needs of customers and communities are the priority and we must
actively demonstrate the value we bring to society and the value we bring to
customers every day. We will continue to improve on service delivery; genuinely
listening to customers and putting them at the centre of everything we do. That’s why
our service strategy is so important.
One of the key things our 200
th
anniversary has shown me is the passion and
commitment of the people of Westpac to supporting our customers and creating a
better future for all Australians and New Zealanders. It is this passion and
commitment that has seen us through the highs and lows of the past 200 years, that
continues to drive us forward and that helps us continue to deliver sustainable returns
for you, our shareholders.